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GenMark Diagnostics (NASDAQ:GNMK)

Q4 2012 Earnings Call

March 12, 2013 4:30 pm ET

Executives

Nancy Torok

Hany Massarany - Chief Executive Officer, President and Director

Richard B. Slansky - Chief Financial Officer

Analysts

William R. Quirk - Piper Jaffray Companies, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Evan Lodes - JP Morgan Chase & Co, Research Division

Zarak Khurshid - Wedbush Securities Inc., Research Division

Jeffrey Frelick - Canaccord Genuity, Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to GenMark Diagnostics' 2012 Fourth Quarter and Year End Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, March 12, 2013. I would now like to turn the conference over to Ms. Nancy Torok of GenMark.

Nancy Torok

Thanks, Kay, and thank you all very much for joining us this afternoon. If you did not receive a copy of yesterday's press release and would like one, please contact our office at (760) 448-4358 after the call, and we'd be happy to send you one. Also, the call is being broadcast live over the Internet and may be accessed at GenMark's website at www.genmarkdx.com. Shortly after the call, a replay will also be available on our website.

I'd like to remind everyone that certain statements, financial or otherwise, made during this conference call, including the question-and-answer period, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. For example, statements regarding our 2013 financial guidance, development timelines and expected regulatory approval are all forward-looking statements.

Forward-looking statements are not guarantees of performance. They involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Factors that might cause such differences include, but are not limited to, those identified in the company's filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and today's press release.

The information discussed on today's conference call should be used in conjunction with our consolidated financial statement. GenMark assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events.

I will now turn to conference call over to Hany Massarany, President and CEO of GenMark. Hany?

Hany Massarany

Thanks, Nancy, and thank you all for joining us this afternoon. I'm joined on the call today by our Chief Financial Officer, Richard Slansky. We have a few prepared comments, and then we will be happy to respond to any questions that you might have.

Our prepared comments will cover the following topics. First, Richard will walk us through our operating results for the fourth quarter and year end 2012. Then, I will provide an overview of our business progress and update you on our business objectives and milestones. We will then turn the call over to you for questions. With that, I will now hand over the call to Richard Slansky. Richard?

Richard B. Slansky

Thank you, Hany, and good afternoon, everyone. We released our results about 30 minutes ago, and we will be filing our annual report on Form 10-K before the end of the week.

We had a very strong quarter and year as revenues grew significantly. Our high-performing commercial team worked very hard to recognize $9.4 million in total revenues in the 3 months ending December 31, 2012. We generated this revenue without realizing the full opportunity available to us for our recently FDA-cleared Respiratory Viral Panel, or RVP test, as many of our customers were still completing their validations of this product during the quarter.

Our Reagent revenue grew by 367% over the same quarter last year. Our installed base of analyzers also grew to 297, a net increase of 42 analyzers in the quarter, and our annuity per analyzer grew to $143,000 in the quarter. These are all important accomplishments for our company.

Now for some detailed financial results.

As I just mentioned, today we reported total revenues of $9.4 million for the fourth quarter of 2012, an increase of 367% compared with the fourth quarter of 2011, where we reported $2 million in total revenues.

For the full year, we more than quadrupled our revenue over 2011. During 2012, year-to-date revenues amounted to $20.5 million compared to a total 2011 revenue of $5 million. Reagent revenues increased 404% to $9.1 million during the quarter compared to $1.8 million in 2011. This was driven primarily by strong sales to existing diagnostic laboratory customers, an increase in our test menu, as well as by securing an increasing number of new customers. The distribution of our revenue was over all of our assays, including our newly introduced Respiratory Viral Panel and 3A4/3A5 genotyping test.

Our gross margin for the fourth quarter was $4.7 million or 50% of revenue. This is versus $400,000, or 20% of revenue, in the same quarter last year. Our year-to-date gross margin was $8.8 million, or 43% of revenue, versus a negative $1.2 million, or negative 24% of revenue, for 2011, an over 800% increase in gross margin.

As discussed in our prior calls, we met our goal of generating a positive gross margin in the fourth quarter of 2011, and we continued to build on that base in 2012 by showing a 22% gross margin in Q1, a 40% gross margin in Q2, a 42% gross margin in Q3 and now a 50% gross margin in Q4 of 2012. Our operations team has worked tirelessly to keep up with demand and produce these results.

Now having said that, we caution you not to expect continued gross margin growth at these rates until sometime after we launch our NexGen system. Although Hany has us focused on gross margin improvements, seasonality will drive volume fluctuations and, therefore, gross margin fluctuations in 2013.

Our overall operating expenses of $9.3 million for the fourth quarter of 2012 increased by $3.5 million compared with Q4 of 2011. The majority of the increase, or $2.1 million, related to our expanded R&D efforts.

Our total operating expenses year-to-date amounted to $30.7 million, an increase of $8 million compared to the same period last year. More than half of the increase, or about $4.8 million, related to our expanded R&D efforts. A smaller but significant portion of the increase of about $1.8 million came from our general and administrative expenses, which increased due to additional facilities, human resources, financial audit and SOX-related expenses.

We also experienced an increase in marketing and sales spending of about $1.4 million versus the same period last year. This increase in marketing and sales spending was largely due to commission and other costs associated with increases in sales volumes as well as in the expansion of our sales and commercial team.

We reported a loss of $0.15 per share for the fourth quarter with weighted average shares outstanding of 31.7 million compared to a loss of $0.27 per share for the fourth quarter of 2011, when our weighted average shares outstanding were 20.1 million.

Our 2012 year-to-date loss was $0.84 per share with a weighted average shares of 26.2 million compared to a loss of $1.45 per share with weighted average shares of 16.6 million for the same period in 2011. As you know, we successfully completed follow-on offerings in June of 2012 and June of 2011.

We ended the year with about $52.6 million in cash, cash equivalents and restricted cash, and we plan to continue utilizing our cash balances primarily to invest in new products and menu development, mainly for our NexGen platform, as we continue the expansion of our commercial organization.

We did use some of our cash in 2012 to make strategic and operational investments, including our preferred stock investment in Advanced Liquid Logic and the expansion of our Carlsbad manufacturing and R&D facility. However, most of our cash was used to support operations and invest in placing XT-8 instruments into molecular diagnostic labs around the United States.

With respect to our control of our financial reporting, we believe that we have successfully remediated our material weakness. Our auditors are finalizing their audit, and we expect them to give their opinion that we have maintained, in all material respects, effective material control of our financial reporting as of December 31, 2012, in our form 10-K filed later this week. Our finance and accounting team worked very hard last year and the beginning of this year to improve our internal controls of our financial reporting.

It is our intention to continue to build a strong and reliable financial control system for GenMark, and, keeping in line with recent SEC communications, we plan to develop a strong internal audit function within the company. Clearly, it is an important milestone for us to have successfully remediated the material weakness that we reported in our 2011 Form 10-K filing, and we fully intend to continue with our strong efforts to improve and strengthen our systems and processes.

Finally, with the ongoing growth of our XT-8 Reagent revenue, the FDA clearance of our RVP test as an IVD, the recent launch of our 3A4/3A5 RUO pharmacogenetic test and the recent release of our HCV genotype direct test, we are providing revenue guidance for 2013 at $35 million.

I will be happy to answer questions later. But with that, I will now turn the call back over to Hany for a business update. Hany?

Hany Massarany

Thank you, Richard. I would now like to comment on our accomplishments in 2012 as well as outline our goals for 2013.

Our business strategy remains unchanged, and our key objectives stay as follows: First, to continue to drive for high-performance commercial execution with a strong emphasis on rapidly expanding our revenue, market share and installed base of analyzers. Second, to maintain our laser focus on innovation and new product development, both in terms of accelerating the development of our NexGen sample-to-answer platform as well as expanding our menu of high-value multiplex molecular tests. And third, to continue to build a sustainable infrastructure capable of supporting the rapid growth we expect over the next several years.

Let's start with commercial execution. In 2012, our sales force performed extremely well relative to our objectives to place more than 100 new analyzers in the marketplace and more than triple our revenue from 2011 levels. In Q4, we achieved 42 net analyzer placements, which put us at 130 net placements for 2012 and a total installed base of 297 analyzers in the field. Our commercial sales funnels are very robust, and based on our current trajectory, we expect to place more than 150 additional analyzers in the field in 2013.

As Richard indicated, reagent annuity per analyzer increased to $143,000 in Q4 2012 from $93,000 in Q3, $73,000 in Q2 and $46,000 in Q1 of 2012. Reagent annuity in Q4 was driven by strong growth in our core test assay, the very successful introduction of our recently FDA-cleared Respiratory Viral Panel test and continued sales to the emerging pharmacogenetic testing market, particularly to one long-term regional reference laboratory customer.

As we have said consistently, our sales to the pharmacogenetic testing market are dependent on a variety of factors, including market demand, reimbursement and new test availability. And as such, our planning does not include future sales growth in the pharmacogenetic market at the same levels. We may be surprised, but we think it is prudent for us to be significantly more conservative as we look at this sector of our business, and we have done so in our planning.

Adjusting for the above-average sales to this customer, annuity per analyzer in Q4 2012 still exceeded our expectation at more than $80,000. This was driven by existing customers continuing to utilize more of our test menu on their XT-8 Systems, a trend that we reported in previous quarters and one which we believe will remain a key driver of revenue growth in the future.

Furthermore, boosted by our FDA-cleared RVP test and a strong flu season, we continued to secure additional high-volume customers in Q4 2012.

At this point, I would like to update you on the progress of 2 unique tests that we believe will significantly contribute to our future revenue growth. First, our recently FDA-cleared RVP test. As you will recall, we launched our FDA-cleared Respiratory Viral Panel in September of last year. This test simultaneously detects and differentiates 14 clinically relevant viruses in patients with influenza-like illness. And compared to other multiplex respiratory viral panels, the GenMark RVP test drives superior sensitivity and laboratory efficiency.

Since launch, our sales force have continued to secure new RVP customers, which contributed to our revenue growth in Q4, and we expect to contribute even greater revenue in the current quarter given the strong flu season.

Customers and key opinion leaders continue to provide us with excellent feedback about our product's performance, and we have a robust pipeline of data planned for publication. Most recently, a peer-reviewed paper in the journal of Diagnostic Microbiology and Infectious Disease highlighted the superior sensitivity of GenMark's RVP assay. This paper presents the clinical outcomes for 5 transplant patients infected with RSV who falsely tested negative by the existing market-leading competitor's RVP assay. Samples from all 5 of these patients were subsequently tested with our assay and found to be positive for RSV. The key findings in the paper are that the initial false negative results delayed diagnosis and treatment, delayed patient isolation, resulting in a hospital outbreak of RSV, and had an adverse economic impact due to the additional tests and procedures that were ordered for these patients in an effort to establish a diagnosis. The paper concludes by highlighting that, in an immuno-compromised population, RSV-associated mortality ranges from 19% to 36% and that accurate laboratory diagnosis and early therapy can be lifesaving.

Another unique test which we believe will continue to contribute significantly to our future revenue growth is our Hepatitis C Virus Genotyping Test. As previously communicated, we expect HCV Genotyping to continue to play a very important role in the diagnosis and treatment of HCV patients, especially as initiatives to test much of the potentially at-risk U.S. adult population get underway. Since our last conference call, we have completed development and launched our HCV Genotyping direct assay for research use only.

As a reminder, this test provides more comprehensive genotyping and more specific subtyping direct from serum and plasma samples. Early feedback from customers and key opinion leaders has been very positive with respect to sensitivity, specificity and ease of use. Recent data from studies conducted by these laboratories have demonstrated more than 97% agreement with competitive assays. And importantly, on samples the existing tests have been previously unable to genotype or subtype, GenMark's HCV Genotyping direct assay has been able to successfully genotype and subtype, on average, 70% to 80% of these samples. We expect that a significant amount of this early data will be presented at the clinical virology society's annual meeting in April.

Finally, we continue to advance our plans to pursue IVD status for HCV Genotyping based on our recent pre-IDE submission to the FDA.

In light of these factors, and based on 2012 sales results and current business trajectory, we expect to achieve revenues of $35 million for 2013.

Now let me review our focus on innovation and new product development. As we've discussed on prior calls, our attention in this area has significantly shifted to the ongoing development of our NexGen system. As you also know by now, this is a multiplex molecular sample-to-answer system which integrates sample preparation steps, including extraction and amplification, together with our proprietary eSensor detection technology that enables concurrent detection of multiple molecular targets on a single test cartridge. We are designing this system with all the necessary reagents fully incorporated in self-contained test cartridges and the required fluidic movement enabled by proprietary digital microfluidics technology that we licensed last year. We demonstrated a prototype of our NexGen system at the AMP Meeting on October of 2012, and since then, we've continued to make good progress to toward our goal of launching the system by the end of this year for international commercialization by early 2014 and simultaneous FDA submission for IVD approval and subsequent U.S. launch.

We're also developing an extensive test menu for the NexGen platform, which covers a broad range of disease states. With an initial focus on infectious disease, we will target both multiplex and less complex test panels where current platforms and menu options are very limited.

Remember, our proprietary electronic detection system doesn't suffer from interferences and certain complexities that impact other optical detection technologies. So in principle, we believe that no other available technology can match our ability to perform true multiplexing in an IVD environment. This, combined with digital microfluidics for fully automated and rapid sample preparation, is what underpins the uniqueness of our NexGen system and provides what we believe to be the most competitively differentiated sample-to-answer solution for global molecular diagnostics markets.

Finally, I would like to say a few words about our continued focus on building the right infrastructure, one that is scalable to support our business growth. As you know, this had been an ongoing area of focus for our company. In 2012, we designed and built a second manufacturing line that will more than double our production capacity in 2013 and beyond. We also successfully implemented an electronic quality system and achieved ISO 13485 certification in 2012. This further enhanced our FDA-certified Carlsbad facility and supports our well-established quality complaint manufacturing -- quality compliant, I beg your pardon, manufacturing organization and customer support functions, which are now capable of handling the rapid growth that we expect over the next few years while continuing to improve efficiency.

As you can expect, we've also continued to strengthen our team with the addition of experienced leadership and key technical personnel, especially in the areas of R&D, quality and regulatory, manufacturing operations and, of course, as well as commercialization.

In conclusion, 2012 was a year of strong execution and performance for our company, and we are very energized and optimistic about 2013 and beyond. Our goal is to sustain a high level of execution and deliver continued high-performance outcomes. Our commercial team has delivered strong results in 2012, and with the recent menu launches, including our FDA-cleared RVP and HCV Genotyping direct tests, we are poised to place many more systems, expand market share, grow our revenues over the next several quarters. This year, we expect to place more than 150 additional analyzers in the field and achieve revenues of $35 million.

Our R&D organization is well prepared and very focused on completing the development of our NexGen sample-to-answer system. This is where most of our attention will be over the next several quarters as we prepare for launching NexGen late this year.

You can expect to see our investment in R&D increase significantly, especially later in the year, with the addition of our clinical trial costs as we accelerate both NexGen platform and associated menu development. With continued focus on organizational talent, infrastructure and processes, we are well and truly ready for significant business growth.

We will now open the call to questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Bill Quirk with Piper Jaffray.

William R. Quirk - Piper Jaffray Companies, Research Division

First question for me, Hany, just -- and maybe I misheard this here, but it does sound like the NexGen launch slipped a little bit into 2014. Can you elaborate a little bit on that in terms of, I guess, one, if I interpreted that correctly, and two, if you could just elaborate a little bit on perhaps the reason for the slippage?

Hany Massarany

No, there has been no slippage. We've said all along that we will launch the system late in 2013. So the release for sale, in other words the completion of the development and the launch of the system, will be late this year, which means commercialization starts in the first quarter of next year.

William R. Quirk - Piper Jaffray Companies, Research Division

Okay, got it. And then just a couple of quick ones for me. Just thinking about the cost of goods on the new cartridge, can you walk us through kind of where you might think that would be at some level of scale? And then secondly, and this is, I guess, a question specifically for the coming quarter or 2 here, is that as you bring on the new production line, should we expect any type of hiccup with respect to gross margin as that overhead comes on and starts being reflected in the cost of goods?

Hany Massarany

Well, thank you. I'll make a comment in relation to the NexGen cartridge, and then perhaps Richard can answer the other question regarding the next couple of quarters. We've not disclosed any information yet in relation to the cost of goods for the NexGen cartridges. We are very confident, and we've communicated previously, that longer-term, we're expecting 75%-plus gross margin for the business. And that's including, of course, the NexGen platform and associated tests. In relation to the next couple of quarters, Richard can comment on gross margins.

Richard B. Slansky

Sure, I'd be happy to. First of all, I would say that our new facility is really going to be a great addition, and I think we're going to see, in the long term, better margins. In the short term, I don't think you're going to see any significant difference or fluctuations as it relates to the facility itself. I think as we have expressed, we are now in a seasonal business with RVP, our first and fourth quarters. As we generate additional volume, we'll have more absorption, and we'll see slightly better margins than in the second and third quarters. But that will be driven by volume and not necessarily by the cost of the new facility, which really will be spread out over a much longer period of time anyway, but it's a great new efficiency builder for us.

Operator

Our next question comes from the line of Brian Weinstein with William Blair.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

This is Matt in for Brian. My first question is about RVP. I was just curious if you could quantify just about how much that contributed. And was that the primary thing driving new instrument placements in the quarter? And then finally on that, were a lot of those competitive wins, or were you expanding the market?

Hany Massarany

Well, thanks for the question. As you know, we don't report sales by product. Certainly, RVP made a strong contribution to Q4 sales, but as we also indicated, we didn't have the full benefit of the product in Q4, since customers -- some customers were still validating and completing their evaluation of the tests. So that's something that we expect to continue to drive, of course, revenues in Q1, and then, as Richard said, later on this year in Q4 with the next flu season. As far as competitive takeaways, most of those, the vast majority of our -- of customers were actually competitive takeaways.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay. And then just one more here for me. I was just wondering if you could comment on the new molecular diagnostic codes that released earlier this year, just how that impacts the way you think about menu development moving forward.

Hany Massarany

Yes, thank you also for that question. So as you know, the new molecular diagnostic reimbursement codes went into effect on January 1. In contrast to the traditional process, CMS did not issue national-level payment rates for the new codes. Instead, they requested that the regional Medicare Administrative Contractors, or MACs, set rates for their regions by the end of March. So currently, only about half of the MACs have issued either payment rates or draft coverage policies. In addition, CMS will initiate the national-level rate setting process in April, which will publish final rates in November and then become effective in January of 2014. So while reimbursement rates from the MACs have been lower for some tests, others have not been affected. So in general, we believe that the reimbursement process is likely to be fluid in the short term, becoming more stable as we conclude the year with both CMS and then, obviously, the private payer as well clarifying their positions. But we're comfortable with this situation. We have accounted for it in our plans. And it's not really going to change any decisions that we make about our future investment in menu.

Operator

Our next question comes from the line of Evan Lodes with JPMorgan.

Evan Lodes - JP Morgan Chase & Co, Research Division

It's Evan on for Tycho. As you're talking about expectation for 2013, can you give us some view on how concentrated you expect the customer base to be, particularly versus how it has been over the past year?

Hany Massarany

Yes, sure. Thanks for the question, Ivan. Evan, I should say. I beg your pardon, Evan. Look, you'll basically see in our Form 10-K filing that the customer for 2012 that we've spoken about in terms of concentration represented about 58% of our 2012 revenue. It should be noted, however, that in our current financial plan, this number reduces significantly, with a run rate leaving 2013 of about in the 30s, in the low 30s, and then in the teens by the end of 2014. Also, we said that Reagents, the annuity in Q4 and the full year of 2012, was also driven very strongly by growth in our core test assay, and of course, the very successful introduction of our recently FDA-cleared RVP test. So we feel pretty strongly that adjusting for these above average sales with the large regional reference labs, we're still at a solid annuity of about $80,000, and we have very robust funnels of high-volume customers who are in the process of evaluating, implementing our systems. And we're confident that we will continue to drive annuity and growth across multiple new customers in 2013 and beyond.

Evan Lodes - JP Morgan Chase & Co, Research Division

Great color. And then since we're -- you talked some about not having the full benefit of RVP in Q4 but wanting if -- or expecting a full quarter in Q1. Do you expect to grow sequentially, Q4 to Q1?

Hany Massarany

Yes. In relation to RVP, yes. But like I said before, we don't really record by tests. But certainly, we expect growth from RVP quarter-on-quarter.

Operator

Our next question comes from the line of Zarak Khurshid with Wedbush Securities.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Thanks for the color on the large costumers. So just doing the math there, I mean, it sounds like you're assuming that customer's essentially flat year-over-year. Is that correct?

Hany Massarany

Well, Zarak, as I've said consistently, I think, over the past 2 or 3 quarters, we think it's very prudent. We might be wrong, and we might be pleasantly surprised, but we're being very conservative in not baking the growth rates that we've seen recently into our plans of the future. So we're taking a very conservative look in the face of a market that has been growing quite nicely. But also, we're experiencing significant growth with other areas of our business, of course, as I've said, including RVP and HCV genotyping.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Understood. And with respect to RVP, can you elaborate a little bit on what kind of institutions are adopting the test, how exactly are they using it in practice, and what types of technologies are you displacing? Is it the higher-throughput competitors or kind of the lower-volume homebrew-type players?

Hany Massarany

All right. So as you know, until we launch the NexGen sample-to-answer system, our current platform requires offline sample prep steps to be performed. And therefore, all of our business is in the molecular labs. So these are labs in large hospitals as well as reference labs. And we also spoke about the utility of our RVP test. So here, we're talking about very sick people who are hospitalized. And really, the physicians are more concerned about the underlying conditions that can significantly deteriorate if the right diagnosis is not made. So for example, COPD or asthma or, in the worst case, organ transplant patients that may die if the right diagnosis is not made. So that's how the product is used with those patients as opposed to in physician office labs just for diagnosing healthy people, like you and I, to see if they have the flu or not.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Sure. And then the last part of the question, as far as people that you're displacing?

Hany Massarany

We're displacing the key competitors in this space. So again, there are a number of companies out there selling these products, Luminex and others, and we basically compete with them. In certain cases, we've had quite large, reputable labs convert over from culture over to molecular testing, and we see that, that will be an opportunity, and that will continue in the future as well.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Got you. Then one last question, just regarding distribution. Do you envision ever using a large partner to perhaps more broadly canvass the market for RVP? I know Luminex was working with Abbott for a while. It looks like they're now going direct. Can you just maybe talk about your philosophy on distribution and, given some of the dynamics recently, how that may or may not be impacting your business?

Hany Massarany

Yes. We strongly believe that direct distribution, direct sales with our own sales and commercial organization, is the way to go. And we are investing heavily in expanding our sales organization. We have over 22 people now in our commercial organization. That number will continue to expand. I indicated before that we expect to be at 30 by the end of this year and then 40 next year, and so on. So we will invest in our own direct sales force as opposed to using distributors for any of our products.

Operator

[Operator Instructions] Our next question comes from the line of Jeff Frelick with Canaccord.

Jeffrey Frelick - Canaccord Genuity, Research Division

Hany -- just give us a sense, Hany. So with expectations for NexGen U.S. approval by year end, what's the international strategy and a rough timeline there?

Hany Massarany

Yes, so we expect to complete development and release NexGen for sales, complete the development and launch the product, late this year, as we indicated all along, Jeff. And our plans are for international commercialization starting the first quarter of next year. And concurrently, we will be filing for a U.S. FDA approval for IVD in the U.S., and we'll be launching as soon as we secure the FDA approval in the U.S., which will be later in 2014.

Jeffrey Frelick - Canaccord Genuity, Research Division

And internationally, will you start in Europe first? Is that kind of the plan? And will you go...

Hany Massarany

Yes. We're in the process of finalizing our international plan now, Jeff. And of course, we'll be able to talk about it in due course later this year as we get closer to launching the system. But it's fair to say that the initial focus will be on the developed markets in, most likely, Central and Western Europe, and then we go from there.

Jeffrey Frelick - Canaccord Genuity, Research Division

Okay. And did you say you submitted a pre-IDE for HCV genotype?

Hany Massarany

Yes, we have, and we're in discussion with the FDA in relation to the regulatory strategy to secure IVD for HCV Genotyping.

Jeffrey Frelick - Canaccord Genuity, Research Division

Okay. And then just give us a sense maybe how many additional assays should we expect FDA approval over the next -- pick a number, Hany, 2 or 3 years?

Hany Massarany

Well, yes, at this stage, we're not yet ready to talk about the future menus. I will say that most new assays over the time frame that you defined here, 2 to 3 years, will be NexGen assays. And we'll be able to communicate the road map, the assay road map, as we get closer to launch.

Jeffrey Frelick - Canaccord Genuity, Research Division

Okay. And last quick question, kind of housekeeping. Cash instrument sales in the quarter, how many?

Hany Massarany

We did 8, I believe. Is that right, Richard? Yes. We did 8 of the 42 in Q4.

Operator

Our next question is a follow-up from the line of Bill Quirk with Piper Jaffray.

William R. Quirk - Piper Jaffray Companies, Research Division

Hany, just a, I guess, a reimbursement question follow-up, if I will. There is a little bit of scuttlebutt around the Palmetto-Noridian transition in California. And then, of course, Palmetto, it seems like, is likely to try to take the MolDx program national. I don't know if you have an opinion on whether or not -- the likelihood of that happening, but maybe you could just, if you have an opinion, just talk a little bit about how you see the overall reimbursement framework going forward. Do you see this kind of staying with the individual MACs, or do you think a national program would basically, I guess, kind of take over the entire process, for lack of a better term?

Hany Massarany

Yes, I'm sorry, Jeff -- Bill. I wish I could tell you what's going to happen, but it's difficult to know. I mean, there's obviously a lot of moving parts here and a lot of politics. And I know you're becoming a little bit of an expert in the field of reimbursements, and we need to have a chat. I did get your email, and we should have a chat about that. But I really am not sure if, at the end, Palmetto will be successful at sort of managing this at a national level or not. I've sort of described the process and the situation as we understand it, and I'm not really sure how it would play out in terms of Palmetto versus all the other MACs for molecular diagnostics.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to Hany Massarany for closing remarks.

Hany Massarany

All right. Well, thank you so much, everyone. I really do appreciate your time and the terrific questions that you asked. On behalf of our Board of Directors and employees, I want to take this opportunity to thank you very much for your ongoing support. I look forward to seeing many of you in the near future and to reporting our progress on a quarterly basis going forward. So once again, thank you for your time this afternoon and have a great evening. Goodbye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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